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Lawsuit: Insurer underpaid millions by deducting labor depreciation from claims

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Business Practices | Collision Repair | Legal
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An insurance company is being sued by customers who claim they were unpaid on claims because the carrier deducted labor depreciation from their payouts.

Illinois residents Betty and Daniel Grawe filed a class action complaint against Trumbull Insurance Co. last month, claiming it shortchanged them on a property damage claim from May 2021. Details of the claim were not disclosed in the legal filing.

The allegations being made in the lawsuit are similar to complaints within the auto repair sector, where a number of lawsuits have claimed policyholders are being undercompensated.

The lawsuit represents “hundreds or thousands of victims geographically dispersed” throughout 15 states who’ve been collectively underpaid more than $5 million by Trumbull, lawyers said.

“The relatively small amounts of damage suffered by most members of the proposed class make filing separate lawsuits by individual members economically impractical,” the lawsuit says.

“[The] plaintiff’s claims are typical of the claims of the class members, as they are all similarly affected by the defendant’s customs and practices concerning the withholding of labor.”

The Grawe family claimed they held a Trumbull insurance policy for their Carlyle property and expected the insurer to bankroll damages covered by the policy.

After submitting a claim, Trumbull sent an adjuster to calculate the damage and calculate the actual cash value (ACV), the lawsuit said. It alleged that Trumbull uses commercially available software called Xactivate to estimate replacement cost value (RCV), depreciation, and ACV.

A few months later, Trumbull came back to the Grawes, confirming the couple had suffered a loss of $11,307.51 to their property, the lawsuit said.

“In calculating its ACV payment to the plaintiff obligations to plaintiffs, [the] defendant subtracted from the RCV estimate the $1,000 deductible provided for in the policy plus an additional amount ($1,504.70) for depreciation, resulting in a net payment of $8,802.81.”

The lawsuit claims that Trumbull “withheld costs for both the material and labor required to repair or replace the plaintiff’s residence as depreciation, even though labor does not depreciate in value over time. Defendant withheld labor costs throughout its ACV calculations as depreciation.”

“Defendants’ withholding of labor costs as depreciation associated with the repair or replacement of plaintiff’s property results in plaintiffs receiving payment for their loss in an amount less than they were entitled to under the Grawe policy.”

Trumbull has not yet responded to the lawsuit and could not be reached by Repairer Driven News for comment.

Within the auto insurance sector, several lawsuits are pending in U.S. district courts to challenge the valuation systems used by car insurers to determine cash value on total loss claims.

One such case, which was argued in an appeals court this week, involves two Louisiana residents who had insurance policies through United Services Automobile Association (USAA).

A plaintiff in the case, Arthur Sampson Jr., filed a complaint against USAA after his 2012 Mazda 6 Sport was damaged in a Feb. 8, 2017 crash.

“Under the terms of these policies, USAA agreed to pay the owner the actual cash value (ACV) of the insured vehicle upon the occurrence of a total loss,” the legal filing says. “To determine the ACV, USAA used a valuation product known as the CCC One Market Valuation Report (“CCC”), which was developed by CCC Information Services, Inc. and sold to USAA and other insurance companies.”

The lawsuit added that the insurance company determined the vehicle had a base value of $6,643 and an adjusted value of $5,999. The plaintiff claims the true value of the car was $12,651.

Sampson changed the insurer valuation with a lawsuit filed in 2019. The lawsuit also represents others who claim they were under-compensated for total loss vehicles.

“[The plaintiff] alleges that the CCC valuation system undervalued their vehicles by unjustifiably applying certain condition adjustments, and that USAA’s intentional failure to fully compensate plaintiffs for the loss of their vehicles amounts to a bad faith breach of contract,” the lawsuit said. “…Plaintiffs seek certification on behalf of USAA policyholders who have been similarly undercompensated based on the use of CCC One Market Valuation Reports.”

Undercompensated repairs and total loss claims are an issue in several states, including Texas, where consumer advocacy group Texas Watch recently analyzed 1,246 auto insurance claims settled through independent appraisers and found the appraisal award was 40% higher than the insurance offer.

Many car insurance policies include an appraisal clause that policyholders can invoke to have a third-party appraisal done when they don’t agree with their carrier’s valuation of their vehicle or damages. Low valuations often lead to improper indemnification for loss, and in some cases can lead to total loss determinations on vehicles that could otherwise be fixed. Both the carrier and the policyholder hire an independent appraiser and if the appraisers can’t agree, an umpire is selected to make the final decision.


Featured image by Baris-Ozer/iStock

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